Weekend Reading – High-savings rate edition
Welcome to some new Weekend Reading: the high-savings rate edition.
You can check out other recent editions and past popular articles below:
I recently wrote about my plan to fight higher inflation. You should be prepared too!
This millennial has accummulated $1.5 million in net worth, in his mid-30s. See how he got there including investing in some exotic assets!
Enjoy these reads about some high-savings rates by some investors and much more to put us in a better place for our financial future.
Have a great weekend!
High-savings rate edition
Another Loonie put the pedal down when it comes to saving and investing. From the article:
“Overall we contributed $64,300 to our registered investment accounts in 2021, which is an insane amount for us. As you may know, our focus is to max out our TFSAs as soon as we can, so the majority of our contributions were to those two accounts.”
This is a good time to remind you that with any savings you do have, focusing on maxing out your TFSA over your RRSP should likely be a focus for you too.
Tawcan also has an incredible savings rate to grow his dividend income by thousands each year. Based on his December 2021 update he and wife now earn from each account:
- “RRSP: $10,996.94 or 35.6%
- TFSA: $9,122.02 or 29.5%
- Taxable: $10,793.24 or 34.9%”
Via Rob Carrick’s Carrick on Money newsletter (subscription), I found this article rather interesting for younger investors – a retirement expert offering advice to millennial and GenZ. Among the expert’s to-dos and tips in summary:
- “Managing cash flow is everything.”
- On FIRE: “If you do plan to leave your job, one thing to note is that the size of your emergency savings needs to be inversely proportional to your certainty of income.” That has long-aligned with my thinking about how much cash should you keep.
- On inflation and asset classes to hold: “Real estate is a really good one. Commercial real estate held up pretty well with inflation. It might be a good time to diversify. As the economy transitions a little bit and we figure out what cities look like, there will be some opportunities there. I’m sure commercial property prices have fallen. Eventually residential is going to correct and nonresidential will become more attractive with an eye toward inflation…. If you haven’t been rebalancing because you’ve been riding the U.S. stock market, now may be the time to do it.”
I like real estate in my portfolio beyond my primary home but I think you should be cautious – don’t overrotate on RE inside your investent portfolio. I think 5-10% in REITs is good.
A Purple Life highlighted how she spent just $20,415 (USD $$) in 2021 as a US Nomad in 2021 – shared expenses with her partner of course. That’s still incredible and cheap.
Our spending is much higher now but will remain higher than that even semi-retirement largely because we have a home – which is an expense:
|Key expenses||Monthly||Annually||Semi-retirement comments ~ end of 2024???|
|Mortgage||$2,240||$26,880||We anticipate the mortgage “dead” before the end of 2024.|
|Groceries/food||$800||$9,600||Although can vary month-to-month!|
|Home maintenance/expenses||$700||$8,400||Represents 1% home value per year, increasing by inflation.|
|Home property taxes||$500||$6,000||Ottawa is not cheap, increasing by inflation or more.|
|Home utilities + internet/TV/cell phones, subscriptions, etc.||$400||$4,800|
|Transportation – x1 car (gas, maintenance, licensing)||$150||$1,800||May or may not own a car long-term!|
|Insurance, including term life||$250||$3,000||Term life ends in 2030, will self-insure after that without life insurance.|
|Totals with Mortgage||$5,140||$61,680||Mortgage dead in 2.5 years…|
|Totals without Mortgage||$2,900||$34,800||As you can see, once the debt is gone, we’ll be in a much better place for financial independence!|
Add in other spending/miscellaneous spending to the tune of $1,000 per month and that’s our budget, maybe, possibly, could be!!??
Back in this older post, I estimated our basic expenses in retirement might around $4,000 – $4,500 per month excluding any major discretionary spending and excluding any international travel (after taxes).
Reader question of the week (adapted for the site):
I have appreciated reading your material I receive. I will spare you my long story as like any number of people, have had lots of ups and downs in life but I do have a question for you. I want to reduce my taxes for last year down to zero if possible. I have lots of RRSP contribution room, so thinking I would put $10 – 15 thousand into this. After the money is contributed, I’m looking for something that might earn money, but not too risky as it would be for the short-term until after a year of turning 71. Thoughts?
Thanks for your email.
I’m not in a position to offer any tax advice, certainly not even any detailed next steps without knowing the full extent of your situation but I will say there are some tips to reduce your taxable income in any given year – you’re definitely on the right track related to RRSP management. Not sure if any of these apply to you but here is a list of “starters” for you:
Contribute to a spousal RRSP – since you can even out your future income is by making contributions to a Spousal RRSP, where the higher income spouse contributes to the lower-income spouse’s RRSP.
Split pension income – with lower income spouse or partner.
Withdraw any assets in the right order – be tax-efficient. Meaning, the tax implications in any given tax year will depend on the type of withdrawal from what account, in what order. In our work with clients at Cashflows & Portfolios (where we provide low-cost portfolio draw down options and retirement projections for Canadians), we often see a “slow draw down” of RRSP and/or RRIF assets to be very beneficial in smoothing out taxes while retirees are receiving CPP and OAS benefits in their 60s and 70s. I think a general rule of thumb is to use your least flexible sources of income first in your retirement income drawdown order:
- RRSP/RRIF assets first, or equally draw down any Life Income Fund (LIF) assets first,
- Make non-registered withdrawals (if you have those assets) second for your income needs,
- Keep *TFSA withdrawals “until the end” while receiving maximum (age 70?) both CPP and OAS inflation-protected government benefits.
*Another option (because there is no upper age limit to TFSA contributions) is to keep contributing to this TFSA account in retirement. Alternatively, you can withdraw money from this account for reducing taxes in any tax year striving to get your taxes to near zero. While TFSA contributions aren’t tax deductible, the income and gains made in the TFSA grow tax-free and money can be withdrawn tax-free. So, any money you withdraw from your TFSA in retirement is not taxable, so that income won’t impact your tax bracket or marginal tax rate. That means after you take into account the basic personal amount tax exemption (BPA) (a non-refundable tax credit that can be claimed by all individuals), you might pay close to zero tax!
Lastly, more to your point, yes, RRSP contributions can reduce taxes owing in any tax year. Contributions to an RRSP means you can deduct the amount you contribute from taxable income when filing your taxes. This means potentially paying less tax and saving more money of course.
Deciding on what to invest inside an RRSP can be tricky but certainly if you are concerned with equity market risks this year, potentially a more balanced ETF or even an ETF with a bias to bonds over equities could be an option for you if you are worried the stock market may go down or sideways for some time.
I have my personal, favourite list of simple all-in-one ETFs here, including the ones that are balanced or more conservative to your risk tolerance comment.
In closing, these are of course just some general thoughts off the top of my head, but I hope they helped you out a bit.
Keep the reader questions coming my way – I try to answer as many as I can on the site!
Speaking of the RRSP – here is pretty much everything you need to know about the RRSP and this year’s RRSP contribution limit.
Other Weekend Reading…
In case you missed it, Cut the Crap Investing shared an investment battle underway this year that will likely impact 2022 returns…
My friends over at Stocktrades.ca highlighted a few Canadian REITs to own in 2022. I liked CAR.UN in particular from their list (I own it) because they are many times larger than their closest residential REIT competitor and they also operate beyond Canadians borders – built-in diversification.
Dave from Accidental FIRE continues to offer some interesting reading material – including how he stumbled upon semi-retirement and continues to evolve.
“If you’re not a regular reader you may not know that I used to be obese and unhealthy in every way, but now firmly ensconced in middle age I’m the healthiest and fittest I’ve ever been in my life.”
Great work Dave, and I hope to accomplish some of the same – become more fit – as I try and work on my goals for 2022.
The Dividend Guy higlighted some stocks to own for 2022. Video below with Mike sipping wine…
My Prudent Life highlight some of his favourite ETFs for his TFSA. A smart list overall for diversification.
Passionate dividend investor Matt Poyner who runs Dividend Strategy highlighted last week how he personally uses the Beat the TSX (BTSX) strategy in his own portfolio. He was inspired by David Stanley, the founder/creator of BTSX – Matt interviewed David in this gem here:
Save, Invest, Prosper!
As always, check out my Deals page.
Have a great weekend!